Saturday, April 19, 2008

Frankly, the article seems chocked with a lot of valuation calls, which is always risky when dealing with a volatile stock like Baidu. Expensive growth stocks tend to get more expensive as investors have often already disregarded more traditional methodologies to justify the present valuation. They know it's expensive and just that fact won't make them sell.

It's "priced for perfection", according to Canacord Adams. "With the stock above $300 again, we're on the sidelines", says Ryan Jacob of the Jacob Internet Fund. Others like SOHU, SINA, CTRP are cheaper. Expectations are very high for the Beijing Olympics and have been for well over a year now -- this favors SINA and SOHU, which focus on display advertising and is less favorable for BIDU who focuses on search, according to Oppenheimer.

Friday, April 18, 2008

Nintendo crushed the competition yet again according to NPD, selling 721k Wii's in the US in the month of March. Xbox and PS3 fought it out for low man on the totem pole, selling 262k and 257k respectively. Wii market share gains accelerated dramatically. PS3 sales were down 30% y/y in Japan.

I can't tell you how cool a Wii is to play because I'm afraid to get one. I might never do anything else. But literally everyone that's talked to me about it loves it to death. I love it too and I've never played it. Nintendo has reinvented the gaming category with this platform and that means long-term success. Stick with Nintendo.

In the past I talked about Synaptics kind of overreacting to earnings and suggested the stock should probably trade in the low to mid 30s. We're either there or getting there. I think the notebook market has held up pretty well and that's most of their business. Apple's iPod ramp is building off a very low base. Things could start to look better for them. I just thought it was undervalued in the mid-20s. I think it's fairly priced here.

The stock has acted very well and I think it's an attractive acquisition candidate for Logitech (who has the added bonus of a currency benefit doing it), Broadcom, Marvell, Intel... any PC semi that's looking to get into cell phones (which they all are doing) could make a case for getting into touchpads/screens as it's a high growth sector of the somewhat stagnant cell phone market. It's also got a relatively stable notebook business that generates decent cash flow.

There's some legal risk and it's unclear to me whether Apple thinks their touchpad patents trump Synaptics technology. As Apple was a Synaptics customer, then went away, then came back, there's clearly some value Synaptics is adding to their product portfolio.

The chart says relatively emphatically that the $34 level is the gravitational pull in the stock. I'm offering some there.

Altera's results were better than expected. Some might think Xilinx's results will follow a similar pattern.

Avnet, Xilinx's largest distributor, had a pretty bad blow-up earlier this week. My understanding is Xilinx is likely to have weaker results, too. Today is expiration. $25 is a strike price and I have a theory that strike prices are like magnets on expiration day. I'm hoping I get a chance to sell it at $25.

Baidu is up 8% in pre-market trading on the back of Google's results. They're also an internet advertising company. That's the only reason. There's little that can be taken from Google's results that directly benefits Baidu. I'm putting a little out short at $338.30. You silly Baidu traders, you.

During the insanity of 1999, I couldn't handle the valuations of a lot of the stocks I was following. Everything was triple digits. I wasn't used to it. As a coping mechanism, I started looking at the moves on a percentage basis. Early on I knew I was going to have to do that with Google. ITS UP SEV-EN-TY DOLLARS!!!! No. Google is up 15% in pre-market trading.

Make no mistake. This is a relief rally. The stock has been compressed on poor industry tracking data (comScore) and economic slowdown fears. Click-throughs did slow -- their growth there is experiencing half-lives. Click throughs were 45% y/y in 3Q:07, 30% y/y in 4Q:07 and now 20% y/y in 1Q:08. Unquestionably that's a negative trajectory.

Revenue growth has slowed. US growth was a mere 1%. International was over 50% of business and there's a big currency benefit there.

After many quarters of Google management warning of rising operating expenditures it finally hit the P&L -- costs rose both on an infrastructure basis and in traffic acquisition costs. It's costing them more to generate this slowing revenue. They're getting pretty big and that makes sense.

My guess is the stock is going to touch $560 (up another 6% from here) and it should be sold. Business is better than the guys selling at 440 thought it was, but at $560 you're telegraphing a compound annual growth rate in the high 20s and the way they're decelerating, that's probably too much.

Thursday, April 17, 2008

They're guiding total revenues to 875-950mm, about a midpoint of $920mm. The street is at 903mm. They're forecasting price declines for the full year at the high end of their prior estimate -- about 55%. They say non-gaap product gross margins will be 14-18%, which is far below models. They say the strong yen may impede their ability to hit their prior gross margin guidance of 24-28% -- ie: costs from Japan (Toshiba JV) will hammer margins.

The only good thing you can say here is next quarter could be a low point... but numbers are going lower near-term and I don't see what drives retail pricing higher. I do see that raw NAND prices are setting them up for more disappointment. They're saying second half will be better. It better be, it's modeled that way.

I still don't like this stock here. I think it belongs in the low 20s. I prefer Micron, which benefits from rising NAND prices.

Something is wrong with image posting but I was going to put up the Google chart and say we're through the ~517 level of first resistance and next stop is $560 where the 200 day is.

PS: Arrrgh. How dare you go up 100 without me, you bastard.

4:51pm -- I'm going to listen to Sandisk in 10 minutes where I can be some value add. On Google I'm just another clicker. For an up to the minute live update, go to Henry Blodget's page. He's been really helpful in this space and should be your first look anyway.

Revenue comes in 5% better at ~850mm with street at $811mm. Product gross margins are worse than expectations and overall gross margins are light. The guidance is for growth on the top line with a further reduction in product gross margins. That's a setup for lower EPS projections. Stock is up a dollar to $26.7 following the number, I'd continue to make sales as I think product gross margin guidance is a problem here.

Wow. Stock is up 50 a minute after the number hits. I can't write that fast.

They crushed top line expectations, coming in at ~3.65 bil. The street was $3.61 bil and nervous as hell. Non-GAAP operating income is $1.83 bil with street at $1.81 bil. EPS come in 35 cents better than the street.

Google is the juggernaut in internet advertising. It's extremely easy to set up to serve their advertising -- as you can see from the Google ads on The Skew, a monkey can do it. They're the biggest and arguably the best search provider.

Comscore data all quarter has indicated a dramatic slowdown in Google click throughs. The debate rages on endlessly about whether Comscore's data will translate into a weaker Google quarter as Google also changed their algorithm to enhance their "true" click through rate. The stock has moved from $720 down to $450 on fears of a slower economy impacting consumer clicking behavior negatively.

I am not brainy or connected enough to make a call on Google. What I will tell you is that I will be sitting here, model in hand, trying to figure out what to do with it after they report. When I chart it, I get a crazy range of $320 to $560. I'm pretty sure I'm going to tell you to do something after the number. I just wonder what that something will be.

My advice into Google is to not be involved. Too much risk either way. You can always get involved afterward.

11:04AM: I just checked to see how my AdSense account is doing. I've made 15 cents in 3 months. That's pretty funny.

The US consumer is weak. The good news is Sandisk has been expanding overseas and will get some dollar euro bang as a result. International is the biggest portion of business so this could goose the top line.

Raw NAND prices are rising and retail prices are not. This squeezes their model. They can have a margin shortfall in an environment like this one.

They have an extremely bold capex plan out there that calls for billions of dollars they do not have. They would have to raise cash in order to follow through on their plan. Bulls cite the company's strong cash position as a justifying valuation metric for ownership. That cash is already spent.

Samsung has become very dodgy with them about royalty payments and seems to be trying to reduce the amount they pay Sandisk. This is kind of a wildcard in the story but a potentially catastrophic downside if Sandisk isn't able to keep the royalties coming. Royalties are nifty because they have absolutely no cost associated with them -- they're pure EPS. At their analyst meeting, Sandisk suggested they're going to wind up negotiating royalties with Samsung lower. When Samsung pulls back, EPS takes a nosedive.

Let me just be clear. I still like this stock. I will probably tell you to buy it again lower. I'm not encumbered by a lot of approval departments and such so I can flip around on stocks quickly. A sell side analyst would probably tell you to buy it on weakness. I would do that too if I were a sell side analyst, but I'm not.

The near-term momentum in the stock is likely to flag following the run-up from the $100 area to $124. It's also likely that managers will continue to build positions in IBM on weakness -- its a defensive name, its trading at 14* earnings and typically it peaks out closer to 20* earnings in the depths of recession. Earnings are rising right now so near-term you can have some faith in the E not dropping out of your P/E. I think you'll get a chance to buy it lower again.

Photon Dynamics guides up Q2. I've previously commented that I like it and after their Q1 results I suggested it would go to $15 over the next few months. It's $11 in pre-market trading now.

The company is guiding Q2 higher to 42-45 million from prior guidance of $36-38 million and saying they'll earn over 12 cents instead of the loss they'd previously projected. Hot. I think this stock has a lot more leg to it as their modular flat panel testing equipment portfolio is just getting traction and there's still a big spending cycle there. Furthermore, we have yet to see what their Salvador Imaging subsidiary can do.

Nokia misses on the top line by about 110mm euro relative to consensus of 12.75b, coming in at 12.62b. Gross margins look ever so slightly light at 35.8%. Despite the top line weakness, operating margins were good. Average selling prices for handsets dropped to $79 from $83 quarter over quarter and down from $89 year over year -- that's what happens when you skew so heavily to low end phones like they do.

I've been saying you should be short this since Texas Instruments (TXN) reported as I had picked up low end strength with high end weakness in the supply chain. I had thought they'd have a margin miss due to the ASP pressure at the low end not being offset by the high end. Instead, they had a revenue shortfall.

At any rate, they're saying the cell phone market will contract in euro terms for this year. That hasn't happened in uh forever. As Nokia has been gaining share regularly, they'll be able to mitigate that somewhat. Numbers will come down regardless due to the shortfall in the current quarter.

I still think there's an awful lot of low end handset inventory sitting out there and their high end is moderating. Guidance should move lower.

Wednesday, April 16, 2008

Short-term signings, which I think are strong as a reflection of the uncertain economy (better to be on a short hook than a long one from the customer's perspective), were the majority of bookings for the quarter.

Let's take that a step further. Part of what people pay for with IBM is the defensive nature of the services business. If the bookings are shifting more and more to the short-term, it could be interpreted as a sign that visibility there is eroding.

Revenues come in better than consensus of 326mm at 336mm. They guide next quarter up 1-4%, which is a range of 340-355mm, with street at 336mm. Gross margin guidance of 65% is slightly better than the 64.8% the street is using.

$21 is about 20*2008 earnings estimates of $1.05 -- where the street is probably going to raise numbers to. It's presently trading $20.7. I think it's tough to get it into the gap above here in an uncertain environment.

I feel like a broken record here but I have to say make the sale on this also because I'm on record liking it lower on price. Here I don't like it so much on price.

A) To stick them onto processors and keep ASPs from falling -- the same reason they're in wifi and graphics. The same reason they're seeding wimax. Intel is in a single digit long-term growth market and the game for them is to keep margins up through faster products, innovation and attach sales as prices fall.

A) Intel exclusively participates in the solid state drive market in NAND. Solid state drives are still ludicrously expensive relative to hard disk drives. Performance doesn't improve much. NAND pricing has to deteriorate significantly for NAND to have material success in the drive market -- a mixed blessing if I've ever heard one. For now, growth will be restricted to the high end of the cell phone market and the high end of the PC market. Intel does not play in the raw NAND market at all and likely has a very limited customer set.

Q) Covello said Intel is going to get out of NAND in late 08, early 09. Huh? How?

A) Intel will probably buy themselves out of the business -- give someone a big cash outlay to buy the ops for an ownership stake. Numonyx seems like the most likely candidate for this kind of transaction. You might see a hard drive manufacturer step up and get involved in SSD -- they know its the future of the portable storage market. Micron has also been known to do transactions like this also if there's enough of a discount attached (they took Texan out of DRAM years back).

Tuesday, April 15, 2008

Hmm. So Intel reports in line with their pre-announcement. The tax rate inches a bit higher.

They guide to 9.0 - 9.6 bil, which is a 9.3 bil midpoint, slightly higher than the consensus (surprise). Gross margins are also guided in line with consensus. The sky is not falling. Tech will breathe a sigh of relief.

There's a couple of things that are happening below the line that will probably bring numbers down. Interest income will be 75mm instead of the 150mm they've had for the last several quarters -- I guess 10 billion of cash earns a lower rate when the Fed cuts every 5 minutes. The tax rate is also creeping higher to 33% vs models of 31%.

Intel didn't use the economy to take down numbers. I think it's kind of a missed opportunity for them to set the bar where they could beat it. Now I think they'll have to struggle next quarter to get where they say they'll be. Despite ditching the money-losing NOR business and business holding up better than anticipated, gross margins are stuck on previous plan. They should have gone up on an in line revenue guide.

I continue to believe Intel is a mature cyclical and the long-term growth rate is mid single digits. I think at $22 it should be growing in at least double digits. That's not what you're getting.

In summation, I'm glad the tech tape will act better because it's cheap... but Intel isn't.

5:02pm --

Apparently the model I was using was a percentage point above consensus. Oops. Keep in mind that Intel guides margins in a range and not to a single point, partly to reflect variability in the number. So they did in fact raise gross margins after dropping the money losing NAND business. Sorry for any confusion. Still expensive. Bye.

Comes in below the revenue guidance of 3.2 - 3.3 bil they had out there for the quarter at 3.1 bil. Non-GAAP operating income looks right on the button and gross margins are slightly over 26%, which is a positive surprise. They guide next quarter to 2.85 - 3.00 bil, which is below consensus of 3.1 bil. EPS the big miss with guidance of ~45 cents below the 58 cents the street has in print.

I think this is in line with recently lowered expectations of a miss due to weakness at the end of the quarter (thats why they missed guidance -- it was all back-end loaded miss). Inventories in the channel are running higher than the range they'd like. I think a lot of this is baked in with the stock at $20 and I'm a buyer on weakness. I bought a little Western Digital at $26.4 already.

Baird out with a call that Broadcom has design wins in Motorola's IPTV set-top shipping in 2009. This of course means that Sigma has been displaced, as discussed previously.

So here we are in the $19 range, where it traded briefly after they reported, bounced, and then bled back. Motorola, which is choking on inventory, is shifting away from the company. BluRay players look great in the store but not on the credit card bill -- they're still too expensive.

8gb NAND shot up another 12% yesterday in spot trading. For some reason Dow Jones is regurgitating the iSuppli report from last week that discusses Apple's slow NAND activity of late. They cut their estimate in February. It seems the report came out last week.

I think Apple is reordering and the iSuppli report is dated information.